CHN:China's currency strengthens

China's yuan has soared to its highest level since Beijing pledged limited currency reform in June, as US Treasury Secretary
Timothy Geithner
prepares to face US lawmakers angry at the yuan's value.

The People's Bank of China on Thursday set the central parity rate - the middle of the yuan's allowed trading band - at 6.7181, the strongest level against the dollar since Beijing vowed three months ago to let the yuan trade more freely.

The currency has appreciated 1.6 per cent since the summer promise and gained 0.7 per cent over the course of this week as US lawmakers readied for hearings on the sensitive issue.

China has a history of allowing the yuan to strengthen slightly ahead of events at which it expects to come under heightened pressure over the value of the currency, which Congressional critics say is grossly undervalued.

Mr Geithner, who will testify before House and Senate lawmakers on Thursday, told The Wall Street Journal last Friday that Beijing had done "very little" since vowing to loosen its grip on the currency.

When asked whether he was satisfied with China's progress on the issue, Mr Geithner replied: "Of course not."

World Bank president
Robert Zoellick
threw his support behind calls for a strengthening of China's currency on Wednesday, telling reporters in Beijing that it would be "appropriate to have an appreciation of the currency".

China made the June pledge after intense pressure from the United States, Europe and other trading partners for a stronger currency. The yuan had until then been effectively pegged at about 6.8 to the dollar since 2008.

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Critics, led by US lawmakers, think the yuan is undervalued by as much as 40 per cent, giving Chinese exporters an unfair price advantage and flooding the American market with cheap Chinese goods - but Beijing has repeatedly refuted those allegations.

Chinese commerce ministry spokesman Yao Jian said on Wednesday: "It is groundless for the US to criticise China's exchange rate policy simply according to the trade surplus alone."

The US trade deficit with China fell slightly to $US25.92 billion ($27.63 billion) in July from $US26.15 billion in June, the US Department of Commerce said last week.

China said last Friday its trade surplus unexpectedly shrank in August to $US20.03 billion as imports sped up - which analysts said would bolster Beijing's arguments for a limited appreciation of the yuan against the dollar.